How not to justify deregulation

Costs are subjective.

This alone is a strong argument against coercive regulation. If a justifiable regulation is one that passes a cost-benefit analysis, we can never justify a regulation because costs are inherently immeasurable.

Sure, regulators can (and do) assign monetary values to perceived costs. The annual per capita cost of foodborne illness in the United States, say, might be said to equal $250—the average total medical bill balance charged due to foodborne illness.

This seems reasonable, but it doesn’t fully capture all costs associated with foodborne illness. What about lost income? Certain life-long side-effects? Physical pain that some victims might value far higher than the balance of their associated medical bill?

These might seem trivial, but they’re anything but. All money costs arise from subjective costs like these.

Additionally, how are regulators supposed to fully account for the cost of implementing a particular rule? Certain controls on food production designed to limit the incidence of foodborne illness might cost food manufacturers just $1,000 per month in the form of equipment and wages. But this added cost might drive a young, small firm out of business that would otherwise have thrived, or deter entrepreneurs from entering the market in the first place. Associated compliance costs might raise food prices enough to put a healthy dinner out of reach for some family sometime—a time when dinner would have made the difference between sick or healthy children, married or divorced parents, a happy or unhappy evening.

The analysis also cannot not account for psychic costs to those who might, for whatever reason, despise the regulation and suffer psychologically. This cost may seem insignificant, but isn’t being happy priority number one? Indeed, even the most financially-efficient regulation only makes things worse if its net result is to decrease total happiness.

For these reasons, many people take issue with regulation. Regulators cannot possibly know the true cost of their rules—who are they to think transgressing on property rights is all good and well without guarantee of a net-positive outcome?

But there’s flipside to this argument that undermines its usefulness as a criticism of regulation: The same logic applies to deregulation.

If regulators cannot know costs because costs are subjective, they cannot justify new regulation in terms of costs and benefits. Likewise, they cannot justify deregulation in terms of costs and benefits, given that those affected by the proposed deregulation have adjusted their behavior in accord with the regulation under review. Deregulation, like regulation, changes things in ways that might be undesirable for some people—ways that might have real economic costs.

So opposing regulation because costs are subjective and therefore cannot be measured or justified from a cost-benefit perspective undermines arguments for deregulation, too, for neither can its costs be measured.

But this is not the only way to justify deregulation. Regulation imposes costs on unwitting, and often unwilling, people, which might be unfair. It weakens property rights, which itself has a cost. Even if a deregulatory initiative cannot be justified from a cost-benefit perspective, it still might be worth doing. But merely citing the subjective nature of costs as a reason to oppose regulation is not a justification for deregulation. If anything, it’s an argument against any further regulatory action whatsoever—even deregulation.

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